CalorieCents

Recently I went to Gaetana’s for a friend’s birthday.  I know the owner from my wild drinking days.  He used to be one of my favorite bartenders in New York City.  Anyways, this place is a hidden gem in the West Village.  I highly recommend the pizza.  It’s great!

As I was walking around the neighborhood with my daughter, I saw the cover of Time Out New York with the words “Get Rich!” and in smaller print “Why 401ks are for suckers.”  For those of you who don’t know, Time Out New York is a weekly magazine that lists things you could do in New York for the week.  It also reviews shows, movies, restaurants etc.  If you’re ever in New York for a length of time, it might be worth your while to pick up an issue.  For personal finance though, I’d rather stick to blogs.

The author of the article, is 26 and states that she hasn’t saved any money for retirement.  She argues that she wants to live now and “not hoard (cash) away so I can score a nice trailer in Clearwater, FL, 40 years from today.”  Joking or not, she sounds like your typical ignorant (but sophisticated and tragically hip) New Yorker.  Nevermind that she hasn’t saved money, I just can’t stand someone insulting anyone else’s lifestyle.  Get off your high horse.

Her employer’s plan contributes 50% match on the first 3% of her contributions.  She implies that there is a 4 year vesting period to gain the full match (25% per year).  She resents that companies are increasing 401k options instead of increasing wages and bonuses.  She mentions the IRS concept of highly compensated employees for 401ks.  She argues that “401ks are designed in such a way that everyone-financial advisers, stockbrokers, mutual-fund managers-gets paid before you do.”  She also states, “…most folks enrolled in 401k plans don’t have a clue how they work.”  She takes no comfort in knowing that “the government and my employer are directing my investments.”  She sums up with the following, “So if I’m on the dole at 65, eating cat food out of a rusty hubcap, I’ll be content knowing that while y’all Steady Eddies were fastidiously stashing pennies [italics my emphasis], I was gorging myself on expensive cheese in Paris and snorting hard drugs off the backs of go-go boys in Berlin.  In other words, I was living.”

I was in awe after I read this.  The author has some misconceptions about 401k and saving for retirement in general.  First, she should be contributing the 3% to get the match.  Even if she stays for one year, she’ll have vested 25% of the match.  Assuming she makes $40,000 a year and only stays one year, her contribution would be $1,200 and her vested employer contribution would be $150.  We’ll just assume an 8% return at 40 year would be about $32,000.  At 10% it would be about $67,000.  I’m thinking she’s being a bit shortsighted about this.  She’s also forgetting about the upfront tax savings.

Second, I’m not sure what she means about other people getting paid first if she enrolls in her 401k.  Last time I checked if I contributed $600 into a 401k, my account received $600.  Also though your investment choices may be limited, the employee directs all the investment choices in his respective plan.  No government, no employer is telling me to invest in anything.  It’s different if she can’t make an investment decision.

Lastly, I think it’s fairly easy to say when you’re 26 that you can live off of cat food but I seriously doubt she’ll feel the same way at 65.  Also how can she afford to go to Paris, eat expensive cheese and score expensive drugs?

I’m pretty sure her editors wanted her to be as controversial as possible.  But if that’s not the case her ignorance shines above her arrogance.  I hope most 20 somethings don’t really think or feel this way about saving for retirement.